RECENT ADJUDICATION ORDERS BY REGISTRARS OF COMPANIES

[Mr. M. GOVINDARAJAN]

Adjudication of penalties

The Companies Act, 2013 (‘Act’ for short) provides punishment under various sections for violation of the provisions of the Section.  Section 454 provides the procedure for Adjudication of penalties.  Section 454 (1) provides that the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government, not below the rank of Registrar, as adjudicating officers for adjudging penalty under the provisions of this Act. 

Section 454 (3) provides that the adjudicating officer may, by an order  impose the penalty on the company, the officer who is in default, or any other person, as the case may be, stating therein any non-compliance or default under the relevant provisions of this Act and may direct to rectify the default.  The procedure involved in adjudication of penalties is as detailed below-

•  The adjudicating officer shall issue a written notice in the specified manner. to the company, the officer who is in default or any other person, as the case may be, to show cause, within such period as may be specified in the notice (not being less than fifteen days and more than thirty days from the date of service thereon), why the penalty should not be imposed on it or him.
• Every notice issued shall clearly indicate the nature of non-compliance or default under the Act alleged to have been committed or made by such company, officer in default or any other person, as the case may be and also draw attention to the relevant penal provisions of the Act and the maximum penalty which can be imposed on the company, and each of the officers in default, or the other person.
• The reply to such notice shall be filed in electronic mode only within the period as specified in the notice or within the extended period as allowed by the Adjudicating Officer.
• If the adjudicating officer is of the opinion that physical appearance is required, he shall issue a notice, within a period often working days from the date of receipt of reply fixing a date for the appearance of such company, through its authorized representative. or officer of such company, or any other person, whether personally or through his authorized representative.
•  On the date fixed for hearing and after giving a reasonable opportunity of being heard to the person concerned, the adjudicating officer may, subject to reasons to be recorded in writing, pass any order in writing as he thinks fit including an order for adjournment.
• the adjudicating officer shall exercise the following powers,-

• to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case after recording reasons in writing;
•  to order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be relevant to the subject matter.

• The adjudicating officer shall pass an order,-

• within 30 days where physical presence is not required;
• within 90 days where physical presence of the party is required.

• If  any person fails to reply or neglects or refuses to appear before the adjudicating officer, the adjudicating officer may pass an order imposing the penalty, in the absence of such person after recording the reasons doing so.

Quantum of penalty

While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors,-

• size of the company;
• nature of business carried on by the company;
• injury to public interest;
• nature of the default;
• repetition of the default;
• the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; and
• the amount of loss caused to an investor or group of investors or creditors as a result of the default.

In no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act.  In case a fixed sum of penalty is provided for default of a provision, the adjudicating officer shall impose that fixed sum, in case of any default therein.

Appeal

Any person aggrieved by the order of Adjudicating Officer may file an appeal before Regional Director, having jurisdiction over this matter, within 60 days from the date of receipt of the order along with the required fees.  The Regional Director may, after giving the parties to the appeal an opportunity of being heard, pass such order as he thinks fit, confirming, modifying or setting aside the order appealed against. 

Compliance of the order

Unless the appeal is filed against the order of Adjudicating Officer/Regional Director, the said order will become final. 

The company/officer-in-default has to comply with the order within 90 days from the date of receipt of the order.  If the same is not complied within the stipulated period the company shall be punishable with fine which shall not be less than Rs.25000/- but which may extend to Rs. 5 lakhs.  If the Officer-in-default failed to comply with the said order  such officer shall be punishable with imprisonment which may extend to 6 months or with fine which shall not be less than Rs.25000/- but which may extend to Rs.1 lakh, or with both.

Penalty shall be paid through Ministry of Corporate Affairs portal only.    All sums realized by way of penalties under the Act shall be credited to the Consolidated Fund of India.

Prosecution

In case of non compliance of the order prosecution will be launched against the company and the Officer-in-default under section 454(8) (ii) of the Act.

Adjudicating Officer

Vide Notification No. S.O. 831(E), dated 24.03.2015 the Central Government appointed Registrar of Companies as Adjudicating Officers for the purposes of this Act having respective jurisdiction.

Recent Adjudication Orders

Some recent orders passed by the Adjudication Officer are given as below-

Failure to file the financial statements

Blue Stockspin Limited failed to file the financial statements along with the required documents under section 137 for the financial year 2019 – 2020.  The Adjudicating Officer (Gujarat, Dadra & Nagar Haveli) issued a show cause notice on 29.06.2021directing to rectify the default within 15 days and pay the penalty.  No reply has been given by the company.  The Adjudicating Officer fixed the hearing date on 31.01.2022.  The company or its authorized representative did not appear.  The Adjudicating Officer imposed penalty Rs. 65,300/- [Rs10000/- +Rs.100/- x 553 days (for the period from 01.02.2021 to 08.08.2022, the date of order).

Non sending of financial statements to members

Huizhong Automobile Components India Private Limited has filed an adjudication application in GNL – 1 on 29.07.2022 to adjudicate the default under section 136(1) of the Act.  

Section 136(1) provides that a copy of the financial statements, including consolidated financial statements, if any, auditor's report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting.  

Section 136 (3) provides that if any default is made in complying with the provisions of this section, the company shall be liable to a penalty of Rs.25000/-  and every officer of the company who is in default shall be liable to a penalty of Rs.5000/-.  Personal hearing was offered to the company.

The Adjudication Officer held that the company and its officers are liable for penalty under Section 136 (3) of the Act.  The Adjudication Officer imposed penalty Rs.25000/- on the company and Rs.5000/- on three Directors.

Non mentioning of DIN in return

Section 158 of the Act provides that every person or company, while furnishing any return, information or particulars as are required to be furnished under this Act, shall mention the Director Identification Number in such return, information or particulars in case such return, information or particulars relate to the director or contain any reference of any director.

In the matter of scheme of amalgamation of Premier Solution Private Limited with D.J. Shah Investment Finance Private Limited the Adjudication Officer, Gujarat, Dadra & Nagar Haveli,  found that both the transferor company and the transferee company have not mentioned the DIN numbers of respective Directors in the financial statements filed for the last three financial years.  Show cause notice was issued to the companies.  Replies were given by the companies.  Personal hearing was officer on 01.09.2022.  The Adjudication Officer imposed penalty on the company and three directors @ Rs.1,50,000/- each (Rs.50,000  x 3 years).

Non-maintaining of Registered Office

The Adjudication Officer, Gujarat, Dadra and Nagar Haveli, issued a letter, dated 17.01.2022  to Asian Petro Products and Exporters Limited and its KMPs alleging the difference in authorized capital as mentioned in the Annual Return and data base in MCA.  The said letter was returned undelivered on 20.01.2022.  Therefore Adjudication notice was issued to the company and its KMPs on 23.02.2022.  The same were returned undelivered on 03.03.2022.  The Adjudication Officer observed that the Company has shifted its Registered Officer with effect from 17.04.2022.  The Company filed INC – 22 in which the company has failed to attach the mandatory proof of registered office which revealed that the company has contravened the provisions of Section 12 of the Act and Rule 25 and 27 of the Companies (Incorporation) Rules, 2014.  The Adjudication Officer held that the Company and its KMPs failed to comply with the provisions of Section 12(1) of the Act during the period from 17.01.2022 to 20.01.2022 and imposed penalty @ Rs.4000/- (Rs.1000 x 4) on the company and its KMPs.

Dropping the proceedings

The Adjudication Officer, Cuttack, on a complaint, found that Bhagaban Mohapatra Constructions and Engineers Private Limited failed to file MSME – I form.  Therefore Adjudication proceedings were initiated against the said company, its Directors and Officers-in-default.  A show cause notice was issued on 18.02.2022.  No reply has been filed by the Company. Therefore the Adjudicating Officer fixed the physical hearing on 03.03.2022.  The company was represented on that date and the hearing was adjourned to 24.06.2022 at the request of the company.  On that date also there was no representation for the company.  On verification of the record, the Adjudicating Officer found that default in payment is Rs.11,753/- which was due to change in terms of contract.  The MSME Company filed a complaint before the Facilitation Council at Ranchi.  Due to this the payment could not be paid by the Vendor.  Since the matter is sub-judiced the Adjudicating Officer dropped the proceedings.